Chapel Hill Town Manager Roger Stancil's Presentation on the Budget


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On February 2, 2012 at the meeting of the Economic Development & Public Policy Committee, Roger Stancil, Town Manager for Chapel Hill gave a presentation on the Town of Chapel Hill’s budget process, with a focus on priority-based budgeting.

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  • - It is convenient to think of the Town as one entity, however financially we break the Town up into Funds. Funds are individual accounting entities that capture the activities of specific services/programs. For instance the operations of the Town’s Transit system is a separate fund, as is Stormwater, Debt Management and Housing operations, to name a few. We do combine all of these funds for reporting purposes but we prefer to think and talk about them as separate entities for the most part. This is also because some funds, such as enterprise funds, use a different basis of accounting. While most funds have a single or narrow focus the exception is the General Fund that combines most of what is considered the core operating services of the Town. Because it represents about 60% of the Town’s total annual budget we tend to use the results of the General Fund operations as a proxy for the Town as a whole.
  • Budgeted funds by the size of their FY2011-12 Budgets. Government type funds on the left and Enterprise (Business Type) funds on the Right.
  • Property Taxes represent 54% of the Town’s General Fund Revenues State Shared Revenues include Sales Taxes which are about $9 million per year Fund Balance represents non-current revenues – or the amount we dip into our savings to balance our estimated spending for the next year A good portion of the Town’s revenues are at risk: Sales Taxes from business fluctuations and County distribution changes Property taxes from decreased valuation Grants from Federal and State budget problems Fund balance – one-time funds
  • Transit is our Largest single expenditure – 19% of Transits Revenues are from the Town – the rest is from UNC, Carrboro and Grants Police, PW, Fire, P&R, Library, Planning and General Government are all part of the General Fund
  • For the first time in recent history the Town’s General Fund revenues are less than its expenditures. This reflects a trend that started in FY08-09 with the financial crisis. We have been able to avoid using fund balance until FY2010-11 by cutting expenditures. The $1.124 million compares favorably to the $5 million we had planned to spend from fund balance for FY2010-11. FY2006-07 reflects a tight budget year with revenues and expenditures about the same FY2007-08 was a good year because of a $1 million tax windfall from Durham County and additional grants received that were not originally budgeted FY2008-09 reflect belt tightening in reaction to financial crisis – impact on revenue not as bad as predicted FY2009-10 – we were able to stay out of red by further curtailing spending FY2010-11 – starting to use fund balance – revenues stagnant – personnel costs rising
  • Recap of what we have done to address the Financial Crisis since October of 2008: Cut spending Maintained our commitments to our employees and taxpayers (no lay-offs, no increase in taxes) Used Short-term – stop gap measures that are unsustainable To put this in context we must remember that initially we thought that this was a short-term issue and the economy would bounce back as it has in past recessions The graph on the right illustrates one of the cost savings measures that we have employed. This is also an unsustainable strategy if we wish to maintain service levels for the long-term
  • In order to maintain our commitments we have made some choices that are not sustainable: - We stopped setting aside additional funds to help off-set our OPEB liability. That means we are back to a pay-as-you go basis. This is less than ideal, however Council did change all new employees to a defined contribution plan in 2010. This should eventually help to reduce the growth in the liability. - We reduced the Town’s operating budget by $661,000 by using available bond funds to pay for road reconstruction. Road reconstruction is an annual program and bond funds available for this purpose will run out next year if decide to use bond fund again for FY2012-13. For the current year’s budget we reduced pay-as-you-go funded capital projects by $721,269. By taking care of only critical needs we are creating a backlog of capital improvements that will eventually need to be addressed, most likely at a higher cost. We also changed the distribution of the property tax rate to move 1.8cents to the general fund from the debt service fund. We can afford to do this and still pay all of the currently outstanding debt however we cannot issue new debt to address major capital needs such as Police Headquarters and Parks and Recreation space for at least 5 years as we pay-down existing debt ($1.3mil).
  • The Town splits property taxes into three segments. The largest part funds the General Fund. The Debt Management Fund was created in 2010 as part of the debt management plan that matches our most reliable revenue with our debt obligations. Due to favorable borrowing terms for recent debt issuances additional capacity is available in the Debt Fund that was shifted to the GF to help balance the FY2011-12 Budget. The Transit portion represents the bulk of the Town’s contribution to the funding of Transit operations which also received funding from UNC, Carrboro and State and Federal Grants.
  • This chart gives some historical perspective to tax rate increases for the Town and its overlapping districts. Overall our tax rates have been relatively stable. There has been no tax increase the past two years and no increase in three of the last five years.
  • Municipal rates only for FY2011-12
  • One of the variables that can be adjusted in the short-term to help fix budget issues is the amount of capital investment made in any given year. In FY10 and FY12 we severely curtailed planned capital expenditures to help balance the GF operating budget.
  • The Town has doubled the amount of debt it has outstanding since 2004, however debt levels are manageable and consistent relative to other triple A rated jurisdictions. Despite our capital needs we have no plans to issue new debt in the next 5 years due to a lack of capacity to pay new debt service.
  • Consistent with Council Values We have remained true to our values and have taken important steps toward redefining our future and thinking differently about we handle persistent problems such as rising health care costs. We have also been able to maintain our fund balance by reducing our budget and creating enough savings in priori years to avoid planned use of fund balance.
  • We now know there is no “bounce-back” recovery lurking around the bend. The best we can hope for is slow growth over a prolonged period. The short-term strategies we used gave us a temporary breather to get to a point where we can reposition ourselves for a sustainable financial model. Assuming that we are going to continue to provide the same services at the same high level of quality despite the economic changes we have experienced is unrealistic and will ultimately lead to more short-term fixes and deeper budget gaps in the future. For a community that has always seemed to have adequate resources to meet the high expectations of its residents, this is a painful but necessary transition. Luckily we are a thoughtful forward looking community that is taking the steps through the 2020 Visioning process to chart a course for future that includes transforming our budget process into a tool to fulfill the highest priorities of the community even in an time of diminishing resources. We have two projects on parallel tracks racing toward an uncertain future. Our ability to make a strong connection between our visioning process and our budget will help determine our success in translating comprehensive planning into management implementation.
  • Expenditures exceeded revenues – this is bad and represents a trend of diminishing margins in the GF – the fact that it took this long to go into the red is a testament to the effectiveness of our interim budget measures. But as we all know spending more than you take in is a losing proposition in the long-term …even if you are the federal government. Total fund balance went down by $1.2 due to the differential between revenues and expenditures. The good news is that the portion of our diminished fund balance that is technically available for appropriation is considerably higher than last year. So overall fund balance is down and the portion that is not specifically reserved is up. How did that happen? First we reduced the FY12 budget by $2 million, second we moved part of the tax rate from debt fund to GF. These two things alone allowed us to balance the FY12 budget with $3.4 million less fund balance than we used for FY11 (actual difference $5.0m vs $1.1m – the balance is a reduction in encumbrances). This change in the use of fund balance reduces the amount reserved in fund balance for next year’s budget. To summarize, by tightening our budget so that we pledge less fund balance for next year’s budget we increase the portion of fund balance that is not reserved. Of course to do that we made short-term decisions that we will need to pay for in the future: paving, capital, OPEB.
  • Unassigned is up due to the reduction in other reserved amounts, which is principally the amount designated for next year’s budget. Again, this amount was $5 million in FY10 and is $1.1million for FY12. Basically we created some breathing room in the short-term but we need to rebalance revenues and expenditures because our fund balance may not last long enough to see a full economic recovery.
  • This graph illustrates the dramatic change in our use of fund balance “non-current” revenues to fill the budget gap. (graph scale is expanded t=for illustrative purposes). We have a smaller budget funded almost entirely with current revenues, but we had to do some unsustainable things to get here.
  • We have less funds to spend in this year’s budget, but the cuts we made do not significantly change the scope of services provided. CIP and OPEB funding that was reduced do not directly impact services to residents.
  • - The combination of the impact of the financial crisis hitting TOCH later and less severe than the rest of the state and the savings strategies we employed in the last three years have allowed us to make this far fairly intact. We have some clean-up to do once we are on the right path. Including funding for CIP, resuming partial funding of OPEB, using operating funds for street resurfacing. We are starting to feel the strain of multiple years of belt tightening. We are at a juncture where our vision (2020) and our management (budget) must align to provide for a sustainable future.
  • -
  • Resources = Planning, Funding opportunities, new thinking about development decision-making
  • Resources = Planning, Funding opportunities, new thinking about development decision-making
  • Resources = Planning, Funding opportunities, new thinking about development decision-making
  • -
  • Chapel Hill Town Manager Roger Stancil's Presentation on the Budget

    1. 1. Town of Chapel Hill Fiscal Conditions Report Roger Stancil, Town Manager February 2, 2012
    2. 2. Organization of Town Finances (Fund Accounting) <ul><li>Town funds are categorized as follows: </li></ul><ul><ul><li>Governmental – Generally tax supported activities </li></ul></ul><ul><ul><li>Enterprise – Business-like activities, generally self-supporting </li></ul></ul><ul><ul><li>Special Revenue – Restricted to certain uses such as grants </li></ul></ul><ul><ul><li>Capital – Fixed Asset related activities usually project based </li></ul></ul><ul><li>The General Fund is the primary operating fund of the Town and it includes the operations of Police, Fire, Public Works, Library, Parks & Recreation, Planning and General Government </li></ul><ul><li>Fund Balance is the Town’s “Savings Account” </li></ul>
    3. 3. General Fund ($50.5M) Transit ($18.0m) Stormwater ($1.9m) Parking ($2.1m) Debt Service & Capital ($7.2m) Housing ($1.7m) Internal Service ($3.8m) Relative Size of Funds FY2011-12 Budget Other Funds ($1.0m)
    4. 4. Where Town Funds Come From FY2011-12 Budget: $86.4m
    5. 5. How the Town Spends its Revenues FY2011-12 Budget: $86.4m
    6. 6. Impact of Financial Crisis GF Revenues Less Expenditures* 2006-07 thru 2010-11 $365,912 $1,397,401 ($1,124,342) $258,775 1) Overall General Fund Spending Exceeded Revenues $1,813,223 * Net of transfers to other funds
    7. 7. Reaction to Financial Crisis <ul><li>Initially thought to be a “near-term” issue </li></ul><ul><li>Cut back spending: </li></ul><ul><ul><li>$2.1 million reduction in General Fund Spending for current FY </li></ul></ul><ul><ul><li>$0.7 million reduction in pay-go Capital </li></ul></ul><ul><ul><li>Maintain higher level of vacancies: 56 fewer Full-time employees in 2011 vs 2010* </li></ul></ul>* As of October 710 654 200 174
    8. 8. Reaction to Financial Crisis (cont.) <ul><li>Short-term Strategies: </li></ul><ul><ul><li>Suspension of supplemental funding of OPEB liability* </li></ul></ul><ul><ul><li>Using Bond funds for operating expenses: Annual Road Repaving </li></ul></ul><ul><ul><li>Reduction in funding for capital improvements </li></ul></ul><ul><ul><li>Shifting tax revenue from Debt Service Fund to General Fund </li></ul></ul>Debt Service Fund Tax Rate Shift $1,297,800 Bond Funds for Paving Operations $661,000 Reduce Capital Pay-go $721,269 OPEB Funding $400,000 * Retiree Healthcare
    9. 9. Property Taxes <ul><li>The Town’s property tax rate is divided into three parts: General Fund, Transit Fund and Debt Service Fund. </li></ul><ul><li>For FY2011-12, part of the Debt Fund tax rate was shifted to the General Fund to help balance the budget. </li></ul>Property Tax Rate (cents per $100) $27,264,000 $5,380,000 $2,940,000 FY09-10 FY10-11 FY11-12 General Fund 36.0 36.0 37.8 Debt Fund 9.3 9.3 7.5 Transit Fund 4.1 4.1 4.1 Total 49.4 49.4 49.4
    10. 10. Property Taxes <ul><li>Property taxes are 48% of General Fund Revenues and 19% of Transit Fund Revenues </li></ul><ul><li>Town property tax rates have stayed the same for the last three years </li></ul><ul><li>The Town portion of a Chapel Hill resident’s tax bill is 32% </li></ul>School District
    11. 11. Chapel Hill Property Tax Rates (Last 10 Years) Hill and Overlapping Districts (Orange County) Does not include Downtown District . 553 . 575 .522 .522 .522 .581 .494 .029 Town of Chapel Hill | 405 Martin Luther King Jr. Blvd. | (.008) .494 .494
    12. 12. Comparative Tax Rates (Municipality Only)
    13. 13. Capital Improvements <ul><li>Small capital improvements are funded through annual pay-as-you-go appropriations </li></ul><ul><li>These annual appropriations fluctuate with the amount of available “one-time” money </li></ul>Budgeted Capital Improvements (Pay-Go) $1.12M $1.03M $0.30M $1.17M
    14. 14. Debt Management <ul><li>Major projects (TOC, Library, Southern Community Park and Aquatics Center) have significantly increased outstanding Debt </li></ul><ul><li>In FY09 The Town initiated a Debt Management Plan to address the budgetary pressure of increasing debt service </li></ul>Total Outstanding Debt ( Last 10 Fiscal Years) $625 $608 $1,125 $1,062 $1,146 $1,041 $930 $1,140 $847
    15. 15. Reaction to Financial Crisis <ul><li>Maintaining our Commitments: </li></ul><ul><ul><li>Avoided layoffs, furloughs and major benefits changes </li></ul></ul><ul><ul><li>Not raising property tax rates for three years </li></ul></ul><ul><ul><li>Investing in our future: </li></ul></ul><ul><ul><ul><li>Fully funding the Comprehensive Planning Initiative </li></ul></ul></ul><ul><ul><ul><li>UNC Healthcare Partnership for employee health </li></ul></ul></ul><ul><ul><ul><li>Ombuds program </li></ul></ul></ul><ul><ul><li>Maintain fund balance levels to address future revenue shortfalls </li></ul></ul><ul><ul><li>Maintain Funding level for Performance Agreements with Other Agencies </li></ul></ul>
    16. 16. What we have Learned <ul><li>Economic crisis is not a short-term event </li></ul><ul><li>Stop-gap measures will not work </li></ul><ul><li>We need to think differently about how we budget </li></ul><ul><ul><li>Budget priorities should be aligned with our community priorities </li></ul></ul><ul><ul><li>Spend within our means </li></ul></ul><ul><ul><li>Stop assuming same scope of services </li></ul></ul><ul><ul><li>Concentrate on services that are of the highest value to the people we serve </li></ul></ul>Define Budget Programs Identify Priority Themes Priority Budgeting 2020 Visioning Identify Available Resources Evaluate Programs Based on Priority Results Establish Priority Results
    17. 17. Where we are now <ul><li>We completed FY 2010-11 with mixed results: </li></ul><ul><ul><li>GF spending exceeded revenues </li></ul></ul><ul><ul><li>Total GF fund balance decreased but unassigned fund balance increased </li></ul></ul><ul><li>The 2011-12 Budget is smaller than the prior year and uses less Fund Balance, but it is built on unsustainable strategies </li></ul><ul><ul><li>We have run out of “easy” strategies to balance the budget and we now need to address service levels </li></ul></ul>
    18. 18. Total GF Fund Balance FY2005-6 thru FY2010-11 19.6% 23.5% 14.9% 21.4% 12.4% 26.2% $20.4 $17.6 $17.9 $19.9 $21.5 $21.3 * Prior to FY11 fund balance designations and reserves were was categorized differently <ul><ul><li>3) Unassigned (available) fund balance increased </li></ul></ul>
    19. 19. Budget Revenue Comparison FY2011 and FY2012 <ul><li>GF Budget decreased $2.1 million (3.9%) </li></ul><ul><li>Use of fund balance declined by $4 million </li></ul><ul><li>Current revenues increased due to property tax shift ($1.3m) and minor growth in other sources </li></ul>$5.1m $1.1m $47.5m $49.4m $50.5 million $52.6 million
    20. 20. Budget Expenditure Comparison FY2011 and FY2012 $8.6m $8.2m $19.4m $19.4m $9.9m $13.0m $13.2m $11.3m <ul><li>Decrease in Gen. Gov. is due to reduction in CIP and OPEB funding </li></ul><ul><li>Decrease in Leisure is due to changes in Parks & Rec. & Library </li></ul>
    21. 21. Where we are now (Summary) <ul><li>We have been successful in balancing our budget while maintaining our commitments </li></ul><ul><li>We have used several strategies to balance the budget and some are unsustainable </li></ul><ul><li>Strategies that have gotten us this far are beginning to erode the quality of our services </li></ul><ul><li>We are now at the crossroads of financial sustainability </li></ul>
    22. 22. Next Steps: Expenditures <ul><li>Prioritize services based on 2020 Vision (Priority Budgeting) </li></ul><ul><li>Address Town-wide non-personnel costs: utilities, fleet, copiers & printers </li></ul><ul><li>Identify assets for possible sale (Asset Management) </li></ul><ul><li>Grow Healthcare Partnership </li></ul><ul><li>Manage personnel costs by vacancy management and attrition (Workforce Planning ) </li></ul>
    23. 23. Next Steps: Revenues <ul><li>Current Focus of economic development efforts </li></ul><ul><ul><li>Better use of existing resources: </li></ul></ul><ul><ul><ul><li>Increase absorption of Office Space </li></ul></ul></ul><ul><ul><ul><li>Capture our entrepreneurs </li></ul></ul></ul><ul><ul><li>Improve Business Climate: Sales taxes will be our best hope for tax growth in the near-term as property taxes decline </li></ul></ul>
    24. 24. Next Steps (cont.) <ul><li>Future Focus: Increase non-residential share of property tax base </li></ul><ul><ul><li>Challenge: One new University Mall plus one new Blue Cross Blue Shield Home Office would only add one percent (1%) to the non-residential tax base. </li></ul></ul><ul><ul><li>Opportunities for new retail development </li></ul></ul><ul><ul><ul><li>15-501 South opportunity may be lost to Wal-Mart in Chatham County </li></ul></ul></ul><ul><ul><ul><li>The Edge at Eubanks and I40 </li></ul></ul></ul><ul><ul><ul><li>Redevelopment of Ephesus Church Road area </li></ul></ul></ul>
    25. 25. Next Steps (cont.) <ul><li>Requirements: </li></ul><ul><ul><li>Clear, streamlined planning and development review process aligned with 2020 Vision </li></ul></ul><ul><ul><li>Resource allocation aligned with 2020 Vision </li></ul></ul>
    26. 26. Additional Resources <ul><li>The following Budget and Financial Documents and Presentations are available on the Town’s Website: </li></ul><ul><ul><li>The Town’s Comprehensive Annual Financial Report for the Fiscal Year ended June 30, 2011 and 8 prior years </li></ul></ul><ul><ul><ul><li>http:// </li></ul></ul></ul><ul><ul><li>The Town’s Annual Budget Document for the current Fiscal Year (FY2011-12) and 7 prior years </li></ul></ul><ul><ul><ul><li>http:// </li></ul></ul></ul><ul><ul><li>Reports to Council during the preparation of the FY2011-12 budget </li></ul></ul><ul><ul><ul><li>http:// </li></ul></ul></ul><ul><ul><li>2020 Project Resource Library </li></ul></ul><ul><ul><ul><li>http:// </li></ul></ul></ul>